Prudence Or Conservative Concept

May 31st, 2006 Comments off
Share |

PRUDENCE OR CONSERVATISM CONCEPT OR PRINCIPLE

· Recognize revenue only when they are reasonably certain

· Recognize expenses as soon as they are reasonably possible

NOTES:

This concept basically does not encourage the anticipation of recognizing income when it is not certain. It prefers that any expenses that can be reasonably ascertain should be taken up.

ILLUSTRATION

Company A has completed 50% of a project. Based on its costing and other evidence, it knows that the project is going to incur losses.

Question: Should the company only take up its losses at the completion of the project.

Answer: Based on prudence concept, the company should quickly in its financial year take up this losses instead of waiting for the 100% completion of the project.

CLICK THIS TO SEE MORE ARTICLES ON ACCOUNTING CONCEPTS & PRINCIPLES

Comments are closed now.

Financial Accounting

 
 

Advertise Here | Brain Teasers/Puzzles | Greeting Cards | Inspirational Quotes | Jokes/Humor | Useful Links | Motivational Stories | Resource | Shopping | Share/Express Your Views | Testimonials | Universities/Colleges | Words of Wisdom from Religions | FREE POSTING OF ACCOUNTING & FINANCE JOBS VACANCY|